Rio Tinto seeks long-term partnership with Mongolia

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Overig advies 07/02/2018 09:46
CEO of Rio Tinto Group Jean-Sebastien Jacques landed in Mongolia on January 21 to visit the Oyu Tolgoi mine. His visit coincides with the establishment of a new Rio Tinto office in Ulaanbaatar.

Rio, which is the majority owner of Turquoise Hill Resources, announced recently that it would be further strengthening its presence in Mongolia by opening a new office in Ulaanbaatar.

Munkhtushig Dul has been appointed as Rio Tinto’s country director and will lead the new Rio Tinto office. Munkhtushig will work in coordination with Oyu Tolgoi LLC led by managing director Armando Torres.

The new office, which will be separate from Oyu Tolgoi LLC, will house Rio Tinto’s Exploration (RTX) team and the Mongolia Delivery Centre (MDC), the local branch of Rio Tinto’s Information Systems and Technology (IS&T) team.

On January 22, the opening ceremony of the new office was held with CEO Jean-Sebastien Jacques, managing director Armando Torres, and country director Munkhtushig Dul in attendance.

“Mongolia is one of Rio Tinto’s most strategically important markets and we are here to stay. We have invested more than seven billion USD in Mongolia since 2010, including salaries, supplier payments, investment in the community, and 1.5 billion USD in taxes, royalties and other payments to the government of Mongolia,” said Jacques.

He also underlined that Rio Tinto’s commitment to Mongolia extends beyond Oyu Tolgoi. Having experienced a standstill in the underground development only just 18 months ago, after familiarizing himself with the progress that has been made since development began, Jacques says that he has gained even more trust that the development is on schedule.

In addition, Jacques met with several engineers working on the underground development and reiterated his previous statements that Oyu Tolgoi will create world-class engineers.

Rio has banked on its forecast that both the price and demand of copper will skyrocket once the underground development of Oyu Tolgoi is complete. New technological advancements such as the use of electric cars will help drive demand, Rio says. Another factor is that no other large copper mines will be turned operational in the coming few years. This has allowed Rio to operate on the assumption that demand of copper will outpace the supply. Jacques said that Rio forecasts the demand increase of copper will coincide with the opening bell of the Oyu Tolgoi underground mine.

In his latest visit, Jacques has expressed Rio’s interest in a long-term partnership with Mongolia, with the latest effort being culminated in a new office in Ulaanbaatar. Jacques underlined that Rio’s commitment in Mongolia does not end with Oyu Tolgoi. The new office in Ulaanbaatar will conduct exploration programs in Mongolia.

“Rio Tinto’s commitment to Mongolia extends beyond Oyu Tolgoi and is a testament to our talented Mongolian workforce who have propelled our operations inside Mongolia and globally forward. This is especially true of the MDC – where Mongolians support Rio Tinto’s global IS&T operations. By investing more in Mongolia we are creating future leaders for our global business and exporting Mongolia’s intellectual capacity around the world. This is a true win-win,” he added.

Munkhtushig Dul, the new country director for Rio Tinto, said, “I am excited to join a company that is dedicated to being a strong partner with Mongolia. Through its shareholding in Oyu Tolgoi, Rio Tinto has invested heavily in Mongolia and is committed to evolving this into a deep and mature partnership for the long-term. I am looking forward to helping shape the pathway for Rio Tinto’s growing investment in our country.”

After the opening ceremony, Jean-Sebastien Jacques took questions from the media.

Recently, the use of machines and increasing automation has been observed globally. At its height of production, will Oyu Tolgoi employ this type of technology and machinery?

Automation has several advantages. For instance, workplace safety is one big example. We could potentially avoid putting humans in dangerous work environments through the use of robots. Looking at the experience of other Rio Tinto mines around the world, while many have employed automation, they still have the opportunity and need to create new jobs that require skill and a high-level of knowledge.

As Rio Tinto operates in a competitive market, the costs of the company must be at a level that it could compete with other mining companies. Automation has the advantage of cutting costs. It is quite clear that Oyu Tolgoi will employ automation in the far future. However, in the next five years, wide scale automation will not be employed at the mine. We are however looking into implementing an operational management system at Oyu Tolgoi.

With the help of this system, urgent and real-time information will be sent to our workers which would help ensure safety in addition to improving effectiveness. Our trials have shown to be more effective than we calculated.

The issue of receiving dividends from Oyu Tolgoi is a divisive and controversial issue amongst Mongolians. The agreement, dubbed the Dubai Contract, has been criticized for postponing the possibility to receive dividends. Can you tell us about when Mongolia will be eligible to receive dividends?

First, in order to distribute dividends, a company must be profitable. More than seven billion USD was invested for the Oyu Tolgoi project and an additional five billion USD was invested for the development of the underground mine. Every investor wants Oyu Tolgoi to profit as quickly as possible and to receive dividends. As I’m sure all of you know, the Mongolian government opted to not invest the amount required from a 34 percent shareholder and decided to cover this investment with its future dividends.

In order to implement the underground development of the mine, we took out a loan from an international financial organization. The money that was loaned must be paid back. As of now, I cannot say when dividends will be distributed. Outside of market forces, exactly when Oyu Tolgoi becomes profitable is a big factor. When discussing this issue, we must talk about how the project has already been beneficial to Mongolia.

To reiterate what I said, 15,000 jobs have been created, 1.5 billion USD was paid in taxes and royalties, and 1.7 billion USD was paid to domestic suppliers for products and services.

This issue must be viewed in the long-term. Meaning that once Oyu Tolgoi becomes a world class mine, then we must look at how we can benefit from that.

The investors that will build the Tavan Tolgoi power station have said that their bid to supply electricity to Oyu Tolgoi has been provided but Rio Tinto has not given an answer. When will Rio give an answer?

The negotiations regarding the supply of power is still ongoing. As we have not yet reached any concrete results, I cannot give any further information.

The Mongolian government imposed a tax act on Oyu Tolgoi. Has the misunderstanding regarding the investment agreement persisted? Will Rio Tinto take steps to correct the misunderstandings?

Tax acts are a normal sight that happen when operating a business. There have been similar issues in America and Australia for Rio Tinto. We discuss the issue and reach a compromise. Oyu Tolgoi received the official tax act around 10 days ago. The administration of Oyu Tolgoi is meeting with the Mongolian tax authorities to clear up the issue.

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